Forex Secrets - Developing the "Anti-Chaos" Trading Strategy and Tactics at Forex Market (Part I)

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"Trading chaos": B. Williams's contribution and the reasons why millions of traders all over the world lose their deposits when they work according to the techniques of this author.

The book "Trading Chaos" by B. Williams is the classical edition that deals with giving the technical analysis to Forex. It is of a great interest not only to me but also to millions of B. Williams's admirers all over the world. From the viewpoint of mine as a trader, this book is so popular because B. Williams tried to do the following:

1. To present Forex chaotic market as a system, making use of the chaos theory.

2. To depict his vision of logic of the structural components motion in this chaos: a) the strategy (Elliot's wave theory); b) the tactics (the fractal analysis; the use of fractals and the so-called "key factor" - i.e., financial and economic instruments.

3. To submit 5 levels of the professional training of every trader. Each of these levels is clearly described and specified - as well as the corresponding goals and the instruments that traders must be capable of using at each of these levels.

In particular, the following chapters of the book in question are dedicated to the problems enumerated below:

Chapter 6. The first level - a trader- novice.

Chapter 7. The second level - an advanced beginner.

Chapter 9. The third level - a competent trader.

Chapter 11. The fourth level - a skilful (trading) trader.

Chapter 12. The fifth level - a trader -expert.

4. Besides, B. Williams enumerates 5 "bullets" that can "kill" any trend -i.e., its reversal points (points of reference). Starting from such points, one can develop new strategy and tactics of the work within the trend.

5. B. Williams also recommends making a business plan. In this "control list", one must clearly specify "the working rhythm", the signals from "the big finger" concerning the deal opening, "stop-loss" levels, cushion pads (suspension pillows), etc.

6. As a professional psychotherapist and trader, B. Williams submits practical recommendations to the beginners and skillful (competent) traders - see Chapters 11 and 12 from "Trading Chaos». The essence of his attitude to traders' principal psychological problems can be approximately formulated as the following. We learn how to integrate into the market basic structure and establish contacts with the market via realizing our own prejudices and by the development of our individual trading programs. You should compare this approach with other psychoanalysts' viewpoints. Such "specialists" try to make money at Forex market rather incompetently (see Chapter 23, dedicated to traders' psychological problems that arise during the work at Forex and methods of their "healing").

7. As the logical continuation of "Trading Chaos", B. Williams has written another book - see "New Dimensions in Exchange Trading". In this book, the author presents his business approach - i.e., Profitunity "via the web".

· He has introduced the indicators (AO, AC and Alligator). Now they are regarded as the obligatory) components of the majority of Forex trading systems.

· He tried to "specify (detect) all market signals" and open deals at the moment when such signals coincide simultaneously, which must be confirmed by different indicators.

I would like to keep on complimenting B. Williams for his accomplishments and contribution to Forex theory but for "one snag to it". Several years ago I started to reflect on certain aspects of B. William's theory. That is, as a rule, 95-97% of traders had lost at Forex before the edition of "Trade Chaos 1, -2" and "New dimensions". At the same time, notwithstanding all achievements and discoveries by B. Williams, the number of traders -losers still remains the same even after the editing of these books.

This circumstance forced me to scrutinize many of B. William's positions more impartially and in detail. I have cardinally reconsidered my views on the trading at Forex.

As I see it, one must clearly distinguish domains where techniques by B. William's and other authors are applicable and where they do not work but only accelerate the process of losing money by a trader. Only after having learned how to detect this boundary one can develop one's own trading system that will bring profits at Forex.

Further, I try to submit my views on Forex market. Starting from the theory, I make a transition to its practical application. In this way one can better understand logic of the currency pair movement at Forex market. Consequently, this approach helps us to trace out a general pattern of opening and closing of transactions at Forex.

CHANGES in FOREX MARKET. FOREX CONTROLLABLE SYSTEM instead of CHAOTIC MARKET and ITS CONSEQUENCES for TRADER'S WORK

Previously Forex was a chaotic market. B. Williams tried to find elements of a system, making use of the theory of chaos. At present the system "tries to disguise its goals and plans" with the help of a superficially chaotic character of movements in this market.

As regards Consortium, the PRINCIPAL CONCLUSION that a trader must make after reading this chapter is the following. This market has ceased to be spontaneous. Now it is organized and controllable. At present volumes of transactions, opened by traders, have ceased being of great influence. Somebody's interest "to push" a currency towards this or that direction has become much more important. Often this interest aims at usurping an N- transaction volume and a number of traders' orders. The primary goal has become to reverse all currency pairs into the opposite direction. This is why the currency often "moves" against the volume, news and the common sense. The charts on April 1, 2005 perfectly illustrate these tendencies. I sincerely hope that everybody sees that these graphs do make exceptions but they don't confirm the rules of Forex.

This is why the techniques of working at Forex, written by those classicists who dealt with the spontaneous market, will more and more diverge from the currency real (true) quotations. It is necessary to mention that at the spontaneous market the direction of the trend and its intensity coincide with the trading volume. At present the base of Forex market is changed in its essence. Now it's being driven by INTEREST of a certain grouping but not by spontaneous forces. This grouping prescribes the currency quotations to us at the market. It is ready to reverse currency pairs against any volume of traders' orders.

The reader should recall one of A. Elder's principal ideas - this author is the classicist of the stock market technical analysis, a trader and the professional psychotherapist. He states that the market is being driven by a crowd (flock), which opens the deals towards one direction. This results in the trade formation.

It is justified when one deals with the chaotic market.

But what does happen at Forex market at present?

Let us again return to the example of USD trend reversal from the "bear" type to "bull" one.

The charts on April 1, 2005 are depicted below.

Chart 8.1. EUR/USD movement (For view picture see notes in end of article)

Chart 8.2. GBP/USD pair movement. (For view picture see notes in end of article)

Let us scrutinize GBP/USD pair behavior on April 1, 2005 after issuing of positive data on GBP and negative ones concerning USA economics. During March, in Great Britain CIPS manufacturing index made 52.0 (the previous value had been reconsidered from 51.8 down to 51.6). In New York, the oil price heightened by $ 2.40 - up to $ 57.70 per barrel. It was the new record-breaking high price in 21 years. During March in USA Nonfarm payrolls were minimal to start from July of the previous year. Its previous value was revised towards its diminution. Michigan sentiment index was 92.6 in March (the forecast had been 92.9 - it had coincided with the previous value). All USA indexes had fallen down.

I hope you take on trust that at the same moment all other currency pairs were adjusted for benefit of USD rate rise against other national currencies. Those who do not believe can check it - these data are public and open to general use.

There arise the questions.

1. Can traders all over the world open transactions in USD "bear" trend almost at the same moment (from M1 to H4 and D1). That is, under the condition of the issue of negative news on USA economy, all traders simultaneously started to buy USD and sell all national currencies. Consequently, USD rate began to sky-rocket. Clearly, this situation contradicts the news, logic and common sense.

2. One should pay attention to the synchronous character of motion of all national currency pairs. The difference in time makes from a fraction of a second to a minute.

The charts on April 29, 2005 serve as another example.

Chart 8.3. EUR/USD pair movement (For view picture see notes in end of article)

Chart 8.4. GBP/USD pair movement (For view picture see notes in end of article)

Analysts attract our attention to the following facts. In the European session EURO/USD pair rate had increased up to the point 1.2976. In the American session it fell down to 1.2852, minimal to start from April 15. The rate fell more than by 120 points. Analysts emphasize the fact that high values of several other USA indices (CIPS and Chicago PMI) pegged USD rate.

In USA in March the personal income index was +0.5%. At the same time, the prognostication had been +0.4%, which had coincided with the previous value. In USA in March the personal spending index made +0.6%. The prognostication and the previous value had been +0.5% and +0.7%, respectively. In April Chicago PMI made 65.6. The prognostication had been 63.0, whereas the prognostication and the previous value had had been 63.0 and 69.2, respectively.

As the consequence of this second "fortuitous" reversal of currencies, USD trend at H4 was changed - from April till the end September, 2005 - i.e., during half a year (at least when his chapter was being written).

As the result of this reversal, national currencies were depreciated with respect to USD. The corresponding indicators (gauges) are the following:

· EURO fell by 1100 points (from 1.2972 down to 1.1865);

· GBP fell by 1900 points (from 1.9164 down to 1.7271);

· CHF fell by 1600 points (from 1.1882 down to 1.3484);

· AUD fell almost by 500 points (from 1.7844 down to 1.7365).

It is an absurd joke, isn't it?

That is, the trend has reversed synchronously with respect to all national currencies by 1000-1900 points for half a year just because of the following events in USA on March, 2005:

- Chicago PMI index was +0.5% instead of +0.4%;

- personal spending index made +0.6% in place of the previous value +0.7%.

Were these events stimulated by traders' wishes and expectations? That is, does it look like all traders simultaneously were being staking wrong over and over again during half a year!

Giving analysis to all the events of those two days, one can see a striking alternative:

1. Either we assume an absurd possibility that there does exist "a world-wide plot of traders" - big gamblers at Forex " included. That is, traders can always act synchronously, whereas National Banks of all countries keep on remaining oddly passive.

2. Otherwise, proceeding from these and hundreds of thousands of the analogous examples, we must admit that Forex is not a spontaneous, unpredictable and chaotic market any more. Now it is replaced by a market, controlled by somebody. In terms of Financial Times and the journal "Currency profiteer (speculator)", this parent group (the organizer of Forex ), is called "Consortium". Below I use this term as well. Consortium is capable of the following:

a). in a fraction of a second to reverse USD trend more than by thousand of points with respect to all national currencies of the world;

b). not to give any chance to National Banks of all countries in the world to prevent the steep fall (or rise) of their national currency rates with respect to USD. Surely, it is assumable that National Banks closely collaborate with this Consortium. However, in this context another statement is important. That is, USD rate reversal occurs simultaneously with respect to exchange rates of all national currencies. However, it looks rather dubious that this very day wishes of all National Banks' suddenly coincided with the purposes of Consortium. Probably, another situation is more realistic. At least some of National Banks were forced to obey Consortium's resolution - i.e., to reverse USD trend with respect to other currencies, their own included.

Thus, there emerges a completely different model. One must not follow "the crowd" ("the flock"), trading volumes and postponed orders at Forex. Giving analysis to a series of factors (the trading volume included), it is necessary to understand the interests and aims of those who give quotations at Forex. Our goal is "to trade together with those individuals". Very often it is against the "crowd" and "volume" of transactions opened by traders. It is illustrated by the example of the charts on April 1, 2005.

Let's dwell on the difference between the goals of Organizer and common participants of any of financial games.

Imagine yourself in the position of an organizer of any financial game, the game of " Forex " included. In the shoes of Organizer, first of all you must determine your goals and principles, opposite to those of other participants of this "game".

1. For the game organizer it is to gain profit regularly and stably.

2. For this purpose, Organizer tries to establish the game rules as simple and "impartial" as possible. His goal is to make this game attractive for all other participants. In this way Organizer collects a large audience of traders, independently of their age, profession and other differences between them.

And now one should look at the familiar aspects from this viewpoint.

a). The fundamental and technical analysis; the army of economists-analysts and other "specialists" who teach all participants to work at Forex "as all do".

b). The classical version of notions of the support and resistance levels (indicators, advisers, etc.), intended for placing all suspended orders and stop-losses approximately at the same points.

c). An abundance of news and factors that influence the currency quotation behavior. As the result, one can readily explain the movement of any currency pair in any way one likes - however, such explanations are submitted post factum.

In case of logical gaps in "impartiality" of the currency pair movement explanation after the issue of news, "foul (forbidden)" methods are always "at service". It is just impossible to refute this reasoning! There are the examples: "the market is unpredictable", "the currency has already finished "working for" the given news before its publication", "the participants have noticed a negative aspect of the index high values, which for sure will manifest itself in future", "an unknown clearing bank has placed an order for buying a given currency in a large amount - under the condition of the "bear" trend (when all trader stake on "sell")", etc. Can you prove the opposite? Surely, you cannot.

You should compare the behavior of the controllable and spontaneous currency markets under the condition of force major.

Only the force major factor is totally unpredictable by Organizer. Such circumstances impartially and clearly indicate the difference between the spontaneous and organized (controllable) markets.

In any area, extremities always play the role of the moment of absolute truth. That is, such extreme situations indicate weak and strong points of any system. It relates to politicians' behavior at crucial periods in a State, to putting on trial equipment and to the situation at the currency market under force major circumstances.

The Episode #1. The force major circumstances in USA on September 11, 2001. There is the difference in the behavior of spontaneous and controllable money-markets.

Chart 8.5. EUR/USD pair movement (For view picture see notes in end of article)

Chart 8.6. GBP/USD pair movement (For view picture see notes in end of article)

The results of trading at Forex on September 11, 2001 ( Forexite Ltd.) are the following. The dollar rate sweepingly fell as compared with the principal national currencies. EURO/USD rate increased more than by 200 points (from 0.8965 up to 0.99167). GBP/USD rate increased more than by 210 points (from 1.4559 up to 1.4773). USD/JPY rate fell almost by 330 points (from 121.84 down to 118.58).

The reason for drop in USD rate was the terrorists' attacks on New-York and Washington. According to news agencies, terrorists had had high-jacked passenger planes. The latter were directed at Trading Center in New-York and Department of Defense (Pentagon) in Washington. The planes had fallen down, which caused the subsequent conflagration and collapse of Trading Center two sky-scrapers. As the result, the trading at New-York Stock Exchange did not take place that day. It was suspended for a not fixed period of time.

The events in USA stimulated the drastic strengthening of CHF rate. In American session USD/CHF rate fell more than by 530 points (from 1.6895 down to 1.6365). EURO/CHF rate fell more than by 200 points and came down lower than the level of the strong psychological support - 1.5 CHF for 1 EURO - to the point 1.4950. The matter is that CHF is considered saving (salutary) currency under the conditions of various world crises. Consequently, investors were anxious to buy CHF as many as possible in such an uncertain situation, induced by the act of terrorism in USA.

Do you get it? Panic captured the whole world - in the first place, USA itself. At the same time, USD rate fell with respect to

- EURO by 2%;

- GBP by 1.47%;

- JPY by 2.7%.

Now let us determine the real fall in USD rate all over the world. As the starting point we take Special Decision by National Bank of Ukraine.

The board of directors of National Bank of Ukraine adopted the resolution, in accordance to which National Bank of Ukraine could fix a rate without taking into account demand and supply. After the act of terrorism in USA on September 11, currency exchange centers in Ukraine raided USD buying rate from 5.25 down to 3.0-2.5 hrivnia (Ukrainian national money) per $1. USD selling rate was being maintained at 5, 35 hrivnia per $1. National Bank of Ukraine stipulated that USD exchange rate had not to deviate from the official rate more than by 10%. Only after threatening to cancel the license to work at the currency cash payments market (Available Funds), currency exchange centers return to buying of USD in cash according to the rate that had been in force before September 11, 2001.

That is, in contrast to the controllable market, the spontaneous one reacted to one day of the force major of September 11 by the double fall in USD rate and more!

Thus, the difference between the reactions of the currency exchange spontaneous and controllable markets makes 50 times and more.

Is it a pure accident? Thus, it looks as at that day the traders, one and all, deciding to stand by USD - so that in their transactions they did not stake on USD rate slump? Or, probably, some of traders bought USD against other national currencies, even not knowing whether USA economics will retain the leading positions in the world or it will level with undeveloped countries (e.g., such as Ukraine). Is it possible? You just imagine what would happen if another plane or two were fallen on reactors of nuclear power plants in USA so that the major part of America would turn into "Chernobyl zone"!

See continuation of this article under name Forex Secrets - Developing the "anti-chaos" trading strategy and tactics at Forex market (Part II)

Note: Full text of this article and pictures of examples Article

If you wish to be trained on Trading System Masterforex-V - one of new and most effective techniques of trade on Forex in the world visit Masterforex-V Academy

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Source by Vyacheslav Vasilevich

Stock Index Futures Expiration Tendencies

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Commercial traders in the stock index futures behave quite differently than the Index traders or, small speculators who act as their counterparts. Collectively, this is perfectly logical. Index traders are positive feedback traders. Positive feedback traders add on to their bullish positions as the market climbs and scale out of their bullish positions as the market declines. This keeps their portfolio balanced to their available cash resources. This also places them on the side most likely to buy the highs and sell the lows. Typical trend following. Small speculators are a sentiment wild card. Their position is more price and sentiment based than anything else. The randomness of their sentiment makes their positions too yielding to lean on.

Commercial traders, on the other hand are negative feedback traders. Their strategy is a mean reversion, value based methodology. Collectively, their models tell them what price is, "fair." The higher the market gets above their fair value, the more they sell. Conversely, the more the market falls below their fair value, the more they buy. Their direct actions typically trace out the meanderings of a wandering market placing their sell signals atop the market's intermediate rallies and their buy signals below the intermediate lows.

There are two other aspects of commercial traders' habits that must be examined before we approach the current outlook. Commercial traders use the stock index futures to hedge their equity portfolios. Their ability to sell short the stock index futures provides them with easily implemented downward protection against a decline in their equity portfolio. Furthermore, direct short sales in the stock index futures avoids the uptick short sale rules in equities along with the avoidance of accounting for capital, gains or losses as well as any changes in basis. This aspect of their behavior is observed by the varied but consistent, slightly negative correlation between the commercial net position and the underlying market.

The second aspect of commercial usage of the stock index futures is their implementation of options and the corresponding trades this forces them to execute in the stock index futures. Just as commercial traders maintain a slight short bias in the futures to protect against equity declines, commercial traders also sell upside calls in the options market in order to collect the premium and lock in some short-term gains. Selling call options creates an instant credit in the trader's account but similar to unearned income this cash is actually a liability whose profit is realized over the course of time. The short call option creates a net short position in the futures market. Commercial traders use the markets' declines to jump in and buy enough futures to offset the upside liability created by the short call options thus, locking in the added alpha they collected upon the initiation of the short call option position.

Now that the basics are out of the way, let's look at how this plays into the current market situation. Three out of the last four quarterly futures and option expirations have seen some very specific trading behavior by the commercial traders. Better yet, it's been easily traceable as you can see on this S&P 500 futures chart (for the chart cotsignals.com/recent-trades.html#id68 ). The market starts acting up around a month prior to expiration. That places us about a week out from the beginning of what I'm expecting from the June expiration and the June pattern has been the most consistent occurring in each of the last five years.

The pattern plays out with commercial traders pressing the market lower about 20-30 days prior to expiration. This decline accomplishes several tasks. First of all, it washes out the weak small speculative long position. Second, it's far enough to force index sellers to lay off part of their portfolio. Finally, its far enough for the commercial traders to cover their direct short hedges as well as allowing them to get futures bought against their short call option positions at a discount. This buying has been enough to run the market straight back up to the highs and create a new churning pattern of consolidation at the highs leading into expiration.

This leaves the market sitting near the highs again and creates the same scenario of index buying and small spec buying that helps grind the market higher, yet again. It's clear the way this has played out over the last few years that the commercial traders are in fact the only beneficiaries of these late quarterly cycle gyrations. However, it's also clear that their footprints are easy to track including one of our recent pieces, "Commercial Traders Own the Stock Market Gyrations." While we feel this is true most of the time, we feel far more certain given our current place in the stock index futures' quarterly expiration cycle.

This material has been prepared by a sales or trading employee or agent of Commodity & Derivative Advisors and is, or is in the nature of, a solicitation. This material is not a research report prepared by Commodity & Derivative Advisors' Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.

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Source by Andy Waldock

Properly Trading the Soybean Vs Corn Spread

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The soybean versus corn spread has received a great deal of justifiable attention this year and the current spread between the two markets is still near its all time highs. The last statement however, generates as many questions as it answers. We're going to look at some of the difficulties in quantifying this spread trade, place it in its historical context and walk through the math so that the next time someone mentions this, you can determine if they're comparing current crop soybeans versus corn or, if they might as well be talking about apples and oranges.

Every trade that is made is based on comparing current prices to past prices in order to determine future prices. Day traders may use something as small as a tick chart for scalpers while Warren Buffet probably uses monthly charts to plan generational trades. The problem with commodity futures data is that the contracts expire and depending on the market, there can be a huge gap in prices in the roll over from the expiring contract to the new front month contract. Obviously, corn and beans both fit this description.

For example, September beans are the last of the old crop beans to be traded. Old crop beans are the available supply currently in storage. When this contract expires many traders will begin trading the November contract, which is this year's bean crop in the ground. The dynamic between these two contracts can be substantially different. Compare this to a currency contract that expires quarterly. There's no difference between a September Yen and a December Yen. A Yen doesn't spoil, isn't affected by drought and won't catch a disease. Thus the $.50 cent per bushel gap between the September and November bean contracts represents far more factors than the.0008-point spread between the September and December Yen contract which is primarily attributable to the discounted interest rate differential.

Before the historical boundaries of an agricultural market can be determined, the right data must be chosen. There are three types of historical data used by trading packages and data retailers and each has their place. Back adjusted and ratio adjusted contracts use mathematical equations to fill in the roll gaps between contracts. In order to compare current crop soybean and corn spread differentials, only non-adjusted original contracts can be used. This is by far the most cumbersome process but it is the only way to answer the actual question being asked; "How has the current crop corn and bean spread behaved between July 4th and November 4th?" These dates were chosen to be past the spring planting fears while still being relevant to our current situation while the November 4th ending date eliminates any first notice day or delivery issues with the November soybean futures contract.

Once the proper tool (data) has been chosen for the job the proper measurement methodology must be determined. Google returns nearly 2,500,000 results for, "bean to corn ratio." Clearly, much has been written on this topic. I have a couple of issues with this process. First of all, gong through 30 years' worth of data yields the following bean to corn ratio results between the first week of July and the first week of November. The average movement in the ratio is.001. Meanwhile, the actual average movement of the underlying contracts is about $.27. Therefore even a negligible change in the ratio reflects an average of $1,350 difference per contract in your trading account. Ratios don't pay bills, cash differentials do.

Secondly, and perhaps more alarmingly, the negligible difference in the ratio is actually an increase from 2.591 on average in the first week of July to 2.592 on average in the first week of November whereas the average $.27 differential in the outright contracts represents a quantifiable decline in the actual spread prices. Finally, over the last thirty years there have been five times when the ratio has declined while the premium in the spread increased. The bean to corn spread ratio may be useful as a general guideline but has been useless in managing a trading account.

This brings us to the current situation in the soybean versus corn spread. Using non-adjusted contracts and comparing the current setup to both historical averages and extremes, it's clear that we are sitting at very lofty levels. Both the cash differential at $8.90 and the ratio at 3.17 are at their highest July 4th levels of all time while their historical averages are $4.42 and 2.591 respectively. Meanwhile, in May, we set an all-time high for the outright differential at $10.57 which also shows another bean corn ratio issue as its highest point was 3.62 set in June of 2008. Clearly the cash differential is pricing in the record corn crop at beans' expense. The average decline in differential for the thirteen years out of the last thirty years in which the spread fell is about $1.20.

The last issues to address in the bean corn spread are contract size, volatility and cash management. The contract sizes of beans and corn at the Chicago Board of Trade are the same - 5,000 bushels. However, due to the much higher price of soybeans, the contract values are clearly different, currently around $54,500 for soybeans versus $18,500 for corn. Capturing the differential movement requires placing the same amount of capital on each side of the trade, not the same number of bushels. The current levels justify 3 contracts of December corn versus 1 contract of November soybeans. This will provide equal leverage on both sides of the long and short ledger. Finally, we come to margins. The CME Group only recognizes this spread on a 1 to 1 basis, which has an initial margin of $2,806. The additional two corn contracts require another $3,300 in initial margin. Thus, the exchanges will require $6,106 in margin to buy 15,000 bushels of corn worth approximately $55,500 and sell 5,000 bushels of soybeans worth about $54,500. And that is how the soybean versus corn spread should be traded.

If you're interested in our other spread trades, you'll find them here.

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Source by Andy Waldock

Basic Steps to Get Ready for Forex Trading

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Forex trading may seem a little complicated at first, but if you take the time to learn about leverage, interest rates, currency pairs, etc., it will soon become less intimidating. Trading on this market can be relatively simple by following visual signals on charts offered by the trading platforms or more in-depth by reading daily financial reports to base the trades. The type of Forex trading is based on personal preference, time you are willing to invest, and the amount in your account.

Let's take a look at a few of the steps to learn more about Forex trading:

Start learning the basics

The very first step to learn about Forex trading is to start reading about the basics. There are plenty of online tutorials and guides to read, as well as trading forums. Reading a Forex glossary is a great way to learn and understand the industry specific words, such as cash price, leverage, dealing spread, fill, no touch, etc. In the early stages, it is practical to simply get familiar with the basics. Leave the actual trading until a solid understanding of Forex trading is acquired.

Sign up for a demo account

Many of the brokers give the first time trader an opportunity to open a demo account to get a real idea of how the market works. Once the demo account is open, it is possible to experiment with a variety of trading methods, learn the mechanics of trading, and try out a few real-time trades to see how the market flows. In general, it is worth staying with the demo account until a proper understanding of the different trading methods is known and able to read the different charts and data.

Learn about risk management

A major skill to learn before starting to trade is risk management. Any trader that isn't able to manage the potential risk is more likely to lose their money in the short-term. It is best to learn about risk management before starting to trade. Study the various different money management methods and risk reward ratio to help in the process of creating a usable trading plan.

Open a live trading account

A great place to start is with a micro trading account. This is quick and easy to set up and only requires a small investment to get started. This initial start-up amount can be as low as $25. In the early days it is best to keep the trades small and slowly increase the risk to complement the gain in skill and knowledge, and also when the trading capital starts to grow.

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Source by Leo Eigenberg

Trading the Decline in Commodity Prices and Volatility

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The commodity markets were designed for commodity producers and commodity end line consumers to limit the volatility and risk in their business models. Producers are only willing to keep producing when they can sell their production at a profit and end line commodity processors are only willing to buy them if they can realize a profit upon selling the goods they've finished. The creation of commodity trading floors provided a singular location for these transactions to be recorded along standardized times and qualities. Unfortunately, commodity producers only want to sell at high prices and commodity consumers only want to buy at low prices. This created the market makers, floor traders and speculator categories that have come into the markets to provide liquidity by providing bids and offers in between the producers and end users. This week, we focus on the creation of the commodity indexes and Exchange Traded Funds created by the banking sector and what effect the current period of low volatility and declining prices is having on the very banks that created them.

The evolution of the markets created an expanding network of commodity related jobs via the personnel required to run the trading firms and direct the standardization of commodity contracts, storage and processing. The off exchange businesses like the storage, shipping and financing sectors had always been seen as ancillary to the primary purpose of ensuring raw material availability to the end line users. Following the tragic events of September 11th the U.S. Federal Reserve board began adopting easier financing terms to just about anyone. The cheap money made it more favorable to borrow the money and build a commodity storage facility to either fill yourself or to rent space as storage for others. This process was partially responsible for the commodity rally of 2008. The ensuing 6 years of sideways to lower price action coupled with forecasts of growing supplies on the horizon has crashed the profitability of this model and is now contributing to the commodity slump just as it did the price spike of '08.

The two commodity sectors that took the most heat during this period were the grain and energy markets. Food and fuel, life is sometimes that simple. These are also some of the easiest markets in which to hoard the physical commodity itself. The large commodity companies like, ADM, Cargill and Monsanto took a ton of heat from the public at large for what was essentially, business as normal (albeit at higher prices) practices. However, the JP Morgan's, Deutsche Bank, UBS, Morgan Stanley, Barclay's etc used their banking experience to tap into the commodity revenue stream. Originally, they participated indirectly through a practice of swapping physical for future risk of the underlying commodity and acting as the middlemen in the brokerage process. Many of these firms took it to the next level as they became involved in physically holding and distributing commodities across the globe as the start up financing became a negligible cost of doing physical business in a Zero interest rate world.

The wild volatility, cheap interest rates and generally high commodity prices attracted more players than ever into the commodity markets. It became the party no one wanted to miss. It appears as though its last call for many of these late comers and they're quickly scrambling out the door as the lack of inflation, lower commodity prices in general and increased regulation suck the profitability out of this once low hanging fruit. Currently, Barclays, Deutsche Bank, Chase and Bank of America are all curtailing their commodity interests or exiting the sector completely amidst tougher regulations and slow, declining markets. According to Bloomberg, commodity related profit for the top ten banks in 2013 was around $4.5 billion compared to the high water mark of $14.1 billion in 2008.

We've posted several charts to illustrate this point as well as the true commercial traders' effectiveness in trading in the current climate. The commodity markets are returning to their previous mode of trading which should benefit the true commodity traders quite a bit and leave the exiting banks with time to lick their wounds before they miss the next big rally in the commodity markets.

One of the primary business models the banking sector introduced to commodities was the ETF (Exchange Traded Fund). ETF's like COW (Cattle) and OIL (Oil) were designed to keep banking clients within the firm rather than letting them participate directly in the commodity markets through a commodity broker of the customers' own choosing. More specifically, the banking sector created non margined, long only index funds that customers assumed would behave like the commodity they were built to track. Not only do most of these funds fail to track their underlying counterparts all that closely but they block the customer from the two primary advantages of exchange traded futures. First of all, commodity futures utilize margin. This allows a market participant to put up a fraction of the face value of the contract while using their excess cash as operating currency. Secondly, the ETF's do not allow short positions, which effectively eliminate 50% of the opportunities to profit. The end result is that the banks place margin with the exchange while lending out the customers' excess reserves. Finally, the bank takes the other side of the clients' trades creating the bank's own short position as the market falls and clients exit the market.

I apologize for the long-winded and basic nature of the opening but it's must have background to discuss the current state of the markets. Referring back to the six charts we've posted you can see a general cross section of the economy as a whole. We've posted crude oil, copper, soybeans, corn, gold and 10-year Treasury Notes which have all traded sideways to lower and done so with a general steadiness and absence of chop. These are the charts that the news is referring to when it talks about the, "decline in commodity volatility." Furthermore, their declining prices have cut the profit potential of the storage facilities bought or built by the big banks. All and all, the markets fairly orderly and deflationary trading has ruined many of the big banks' commodity business models.

Our business is commodity trading. It started more than 150 years ago when the first Waldock's came over from Herfordshire, England as hog farmers. Our trading philosophy has always been an attempt to ascertain the true value of something using whatever tools were made available to us at the time. My grandfather used to tour the country East of the Mississippi with a briefcase full of cash and a gigantic pistol (at least it was gigantic as a kid) and conducted each of his buys in person. My father used ticker tape and hotlines to establish prices across different regions of the country. Now, I use the Commitment of Traders Reports along with a neural network to determine not only the size of the commercial traders' actions but also their eagerness to act at given price levels.

This brings us to the recent sell-off in commodity prices and the exiting of the commodity markets by many of the world's largest banks. Referring to back to the charts, commercial trader momentum is the bottom histogram. Red is negative and blue is positive. It's clear that the major market sell-off is placing these markets within the value area of commercial long hedgers. The typical pattern is for commercial long hedgers to continue to buy as the raw material input costs fall to expand the profitability of future finished goods production. Looking at the charts tells us that refiners are stocking up on crude oil below $98 per barrel, soybeans and corn below $12 and $4.50 per bushel respectively and copper below $3.15 per pound and finally gold below $1,300 per ounce. The decline in prices coupled with a corresponding decline in volatility across multiple sectors - grains, basic materials, precious metals and energy paints a very solid picture of range bound markets for the expected future.

These types of range bound, ebb and flow type markets that are increasingly absent of index and speculative trading respond exceptionally well to the negative feedback model that commercial traders typically employ. This means that the farther out of balance a market falls, the more the commercial hedger (long or short) will add to their position as they make appropriate production estimates of their firm into the future at the market's new price levels. This can clearly be seen on the charts as short-term market movement continues to press the market in one direction; you can see the commercial position grow in a nearly equal and definitely opposite direction. This is also called, "mean reversion trading." The market's rallies are sold and declines are bought based on the anticipation that the market will return to recent levels to provide us with a profit.

The commodity market decline in price and volatility had to occur simply because the legislation of easy money forced the market to find a loophole to exploit for excess returns. That loophole became the swaps, storage and distribution possibilities in the commodity sector. In many ways, the general business of the last ten years has been very similar to one long trend trade. Those who were in early obviously had the greatest ability to profit, meanwhile, those who stayed late find themselves competing for profits at the expense of declining margins and increasing regulation, not to mention higher interest rates on the horizon. I'm proud of the value based trading style we've developed over the years and grateful for the ancestry that has always taught me that the market is always right.

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Source by Andy Waldock

Swing Theory - Principles Of How You Can Use Technical Analysis Swing Charts To Your Trading Profit

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Swing theory and swing charts in technical analysis are theory around charts that belongs to the technical analysis family of "reversal charts". The most frequently used type of swing chart is the Point and Figure (P&F) chart, which is said to have been invented in the late nineteenth century by the legendary trader James Keene. Other members of the same swing theory in technical analysis are renko, kagi, and three-line break charts - some of which I have covered in other articles.

We can define a reversal chart as any chart that filters the raw price data to highlight only the important price points. It is common knowledge in the technical analysis community that valleys and peaks are of most interest whereas sideways movements in the market don't provide much information, and therefore are not as interesting.

Bottoms and peaks are those points of the price action where the direction reverses and the slope of the existing trend changes its arithmetic sign. Below I will use the original terminology from Ralph Elliott to avoid potential confusion with other technical analysts.

A wave is a single straight diagonal line on a chart. Waves always have slope, i.e. they are never parallel to any of the axis in the chart.

A peak is a point of intersection between an upwards sloping wave on the left and a downwards sloping wave on the right, i.e. this is a local maximum for the price.

A valley is the point of intersection between a downwards sloping wave on the left and an upwards sloping wave on the right, i.e. this is a local minimum for the price.

A cycle is just a series of interconnecting waves which will invariable have peaks and valleys in between.

In order to draw and Point and Figure chart we then need determine one key additional input: the box size.

The most frequently used box size in swing theory is the minimum price amount in which the currency can change. In Forex markets this is a pip. There are three cases where the box size can be greater than one pip.

First, this is when the parity rate between the two currencies causes a large bid-offer spread. For example for the EURCZK pair the bid-ask can be 350 koruny, meaning one pip has no filtering meaning.

Second, in swing charts a larger box size can be used when analyzing historical data on a longer timeframe. In this case, the trader would be looking for major price movements rather than intra-day trend reversals.

Lastly, swing chartists can choose to use a larger box size to align peaks and valleys on a chart but this is a personal preference.

There are a number of other inputs that need to be set when applying swing theory such as the reversal amount. There is are a number of free websites offering great information on swing charts and I strongly encourage you to have a look at them. They can make the difference between you achieving wealth trading Forex or not.

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Source by Alberto Pau

4X Cash Compounder Review - Does 4X Cash Compounder Really Work?

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Do you want to find out more about the automated Expert Advisor called 4X Cash Compounder and whether it really works? This is a trading robot that works based on price action and can trade mechanically even during the most critical and unstable market conditions to generate profit. This software created based on various mathematical systems and algorithms that analyze market price action, chart price moving patterns and uses non-lagging indicators.

1. Why You Need to Be Very Careful When Downloading and Using Online Trading Robots

Statistics has proven that more than 90 percent of all trading robots do not work in the long term, either breaking even or causing huge losses as a result of poor money management. In this case, there would not be much difference in the price you pay for the software if it eventually loses your entire trading account.

2. Demo Testing 4X Cash Compounder before Using Real Money

Even robots that claim to have a high winning trades ration are susceptible to huge losses because of poor money management causing them to lose huge positions on a couple of trades. Thus, I knew how important to give programs like 4X Cash Compounder a test run before using real money with it.

3. How Does The 4X Cash Compounder Work to Make Money?

The unique aspect of this robot is that it has been programmed to deal with violent market price action well, something that you will know other robots are not quite capable of handling if you have tested them before. It is recommended for use on the MetaTrader4 platform. I have found that you can certainly use other brokers if you choose to diversify your capital risks across different brokers. The internal trading method is manually programmed with a set of mathematical algorithm that is a set of manual trading system rules.

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Source by William Barnes